This is interesting. According to the article, with the Dodd-Frank regulation put through in 2010, it looks like the new rules now gives restrictions on U.S. banks that have access to the Federal Reserve discount window, in contrast, foreign banks that have U.S. branches do not get access to the discount window but “can” trade in derivatives.
This creates the issue on banking preference depending on your country of origin. I do agree that banks that take part in derivatives trading, should not have access to u.s backstops reserved for deposit taking commercial banks.
CNBC (Financial Times) – The U.S. Federal Reserve is weighing a plan that would allow big foreign banks to avoid costly regulatory changes that were meant to prevent derivatives trading from being subsidized by U.S. taxpayers.
Well you already should know what I would, I’ll say it anyways.
Not sure that EASING, lending standards is the best course of action when demand increases. That is close to what got us in our last crisis. When we lower lending standards on home loans, guess what, demand increase for the cheaper credit. Now I do have faith in the banks that this easing in the lending standard probably was not anywhere as drastic then the 2001-2007 time-frame but I am just saying, this logic they laid out in the article is at least different enough, that is got me to read it and write on here.
Please, bankers and risk officers everywhere, lets not repeat the same trap again. Our recovery will be long and slow and this is a good sign of a healthy, real and sustainable recovery. We don’t need cheap money right now. What we need is more good ideas and businesses to invest in so we can create the jobs that we need in America. Ok, all done.
Bloomberg: U.S. banks saw increased demand for lending in the first quarter and made loans easier to get, according to a Federal Reserve survey.
“Domestic banks generally reported having eased their lending standards and having experienced stronger demand over the past three months,” the Fed said today in Washington in its quarterly survey of senior loan officers. It said the number of banks reporting eased standards and improved demand, rather than the reverse, was “modest.”
You have to appreciate the honesty in headlines like this. It highlights that this current rally or recovery in the markets are in most part due, to the massive stimulus our central bank as provided through bond purchases and historically low interest rates.
Correspondingly, it makes sense that without that assistance that markets prices would drop lower with the potential reality of that not being available. I believe without the unprecedented support the Federal Reserve and U.S. Treasury has provided, we will resume natural deflation to bring asset prices across multiple classes back to a level that can be sustainable with the available credit & money to support them. This will be look down upon from most mainstream economist and commentators but in the end it will be the most sustainable path forward and as such, it should be looked to as positive development.
CNBC - Stocks were headed for their worst day in a month Wednesday after the Federal Reserve signaled that it may be less willing to provide more stimulus to the U.S. economy.
Being that our monetary units come into existence as a debt instrument ie: U.S. Treasury Bond, I can not fathom how issuing more “debt” is going to solve a fundamental problem of having too many obligations that only are paid with the issuance of new debt. If you don’t believe me, then calls the U.S. Treasury and ask them where your tax money goes and what it pays for? Hint: It doesn’t go to pay this years current fiscal budget. It is going to pay past budgets and interest tied to the bonds that were issued when we needed to do that spending.
It seems that our government is hoping that literally “buying” time is somehow going to get our economy the time it needs to repair the damage that has been done since the Vietnam War era that is a notable event that we started issuing debt to cover when we were not willing to tax the people appropriately to pay for. If we did not have a policy and supports “free trade” which in turn has sent many living wage jobs overseas to drive down prices and increase profits to our corporations. The problem with this line of thinking is that there is a breaking limit and we have crossed that line and now we are seeing income and spending by the average person shrinking while prices in areas we exclude in the CPI (Consumer Price Index) are rising (food & fuel).
I believe we are in a era of sustained high unemployment along with a majority of the American population being pushed into some sort of government assistance program. This will not continue forever and the longer it takes us to address these fundamental issues, the harder the transition will be and more citizens will be hurt because of our collective lack of action. If you wanted “my” solution to the bring it would go like this:
Some Solution Suggestions:
- Changed Debt based Monetary issuance into Asset based issuance, over time retire all our current obligation in good faith.
- Review and or Reform all entitlement programs
- Change the policy of “free trade” into “fair trade” where we recognize that our market is sought after and we would not allow corporations to dump finished products on our markets while evading wage and pollutions laws
- Set real limits to private financing of campaign elections (state & federal) so our representatives are forced to take more time for regular citizens and drastically less from lobbyists and wealthy donors
- Enforce the rule of law in all cases
- Support public education, we need more educated citizenry, this creates more informed voting and that should provide better policy decisions from the representatives that sway these more educated voters.
I could go on about a million more little issues that have compounded to create this large problem we are dealing with. Lastly, read your history, it helps. Happy Friday!
Money News - The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.
“Last year the Fed purchased a stunning 61 percent of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis,” Goodman writes. Goodman also warns that U.S. economy and markets are “at risk for a sharp correction” if conditions aren’t “normalized.” “This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.”
No surprise here, this is part of the result you receive when you do quantitative easing and try and keep it a sterile operation. The central banks racks up your public debt and their balance-sheet explodes! I just do not see any way this will not end in some sort of general price inflation. We need to get serious about getting our fiscal house in order or order will be brought to our financial house. If Europe and the Euro continue to decline, we will most likely see more stimulus and that will bring increased buying of government debt by the U.S. central bank.
CNS News (Terence P. Jeffrey) - At the close of business on Tuesday, the debt of the federal government exceeded $15 trillion for the first time–with the largest single owner of the publicly held portion of that debt being the Federal Reserve.